FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)

[X]   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 or 15 (d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

                      For the quarter ended March 31, 2001

                                       OR

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or 15 (d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

Commission File Number                       1-12727
                      ----------------------------------------------------------

                          SENTRY TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                          96-11-3349733
--------------------------------------------------------------------------------
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                           Identification No.)

        350 Wireless Boulevard, Hauppauge,  New York            11788
--------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)

                                  631-232-2100
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

Yes      X                 No
   ------------               -------------

As of May 14, 2001, there were 61,467,872 shares of Common Stock outstanding.

<PAGE>

                          SENTRY TECHNOLOGY CORPORATION
                                      INDEX

                                                                        Page No.
                                                                        --------
PART I. FINANCIAL INFORMATION

Item 1.       Financial Statements (Unaudited)

              Consolidated Balance Sheets --
              March 31, 2001 and December 31, 2000                       3

              Condensed Consolidated Statements of Operations --
              Three Months Ended March 31, 2001 and 2000                 4

              Condensed Consolidated Statement of Shareholders' Equity
              Three Months Ended March 31, 2001                          5

              Condensed Consolidated Statements of Cash Flows --
              Three Months Ended March 31, 2001 and 2000                 6

              Notes to Condensed Consolidated Financial
              Statements -- March 31, 2001                               7 - 9

Item 2.       Management's Discussion and Analysis of
              Financial Condition and Results of Operations              10 - 12

PART II. OTHER INFORMATION

Item 6.       Exhibits and Reports on Form 8-K                           13

Signatures                                                               13


                                       2
<PAGE>

SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

                                                        March 31,   December 31,
                                                          2001         2000
                                                          ----         ----
ASSETS
CURRENT ASSETS
      Cash and cash equivalents                         $    550    $    927
      Accounts receivable, less allowance for doubtful
         accounts of $896 and $890, respectively           3,277       3,178
      Net investment in sales-type leases -
         current portion                                      80          84
      Inventories                                          4,562       5,274
      Prepaid expenses and other current assets              288         202
                                                        --------    --------
               Total current assets                        8,757       9,665

NET INVESTMENT IN SALES-TYPE LEASES -
      non-current portion                                     80         100
SECURITY DEVICES ON LEASE, net                                31          36
PROPERTY, PLANT AND EQUIPMENT, net                         3,203       3,324
OTHER ASSETS                                                 273         720
                                                        --------    --------
                                                        $ 12,344    $ 13,845
                                                        ========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
      Revolving line of credit                          $  2,792    $  2,920
      Accounts payable                                     1,256       1,463
      Accrued liabilities                                  1,888       2,633
      Obligations under capital leases -
         current portion                                     128         124
      Deferred income                                        300         352
                                                        --------    --------
               Total current liabilities                   6,364       7,492

OBLIGATIONS UNDER CAPITAL LEASES -
      non-current portion                                  2,735       2,768
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY                 183         199
                                                        --------    --------
               Total liabilities                           9,282      10,459

REDEEMABLE CUMULATIVE PREFERRED STOCK                         --      29,180

COMMON SHAREHOLDERS' EQUITY (DEFICIT)
      Common stock                                            61          10
      Additional paid-in capital                          44,358      12,859
      Accumulated deficit                                (39,357)    (38,663)
      Receivable from stock sale                          (2,000)         --
                                                        --------    --------
               Total common shareholders' equity           3,062     (25,794)
                                                        --------    --------
                                                        $ 12,344    $ 13,845
                                                        ========    ========

See notes to the condensed consolidated financial statements.


                                       3
<PAGE>

SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

                                                           Three Months Ended
                                                                March 31,
                                                           ------------------
                                                            2001        2000
                                                            ----        ----
REVENUES                                                  $ 4,670     $ 4,872

COSTS AND EXPENSES:
      Cost of sales                                         2,391       2,659
      Customer service expenses                             1,129       1,157
      Selling, general and administrative expenses          1,522       1,773
      Research and development                                175         226
                                                          -------     -------
                                                            5,217       5,815
                                                          -------     -------
OPERATING LOSS                                               (547)       (943)

INTEREST EXPENSE                                              147         158
                                                          -------     -------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
      EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE               (694)     (1,101)

INCOME TAXES                                                   --          --
                                                          -------     -------
NET LOSS BEFORE CUMULATIVE EFFECT OF
      CHANGE IN ACCOUNTING PRINCIPLE                         (694)     (1,101)

CUMULATIVE EFFECT OF CHANGE IN
      ACCOUNTING PRINCIPLE                                     --         301
                                                          -------     -------
NET LOSS                                                     (694)     (1,402)

PREFERRED STOCK DIVIDENDS                                     (25)       (332)

RETURN TO COMMON SHAREHOLDERS FROM
      REDEMPTION OF PREFERRED STOCK                        27,198          --
                                                          -------     -------
NET INCOME (LOSS) ATTRIBUTED TO
      COMMON SHAREHOLDERS                                 $26,479     $(1,734)
                                                          =======     =======
NET INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE
      EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
           Basic and diluted                              $   0.46    $ (0.15)
                                                          ========    =======
NET INCOME (LOSS) PER COMMON SHARE
           Basic and diluted                              $   0.46    $ (0.18)
                                                          ========    =======
WEIGHTED AVERAGE COMMON SHARES
           Basic and diluted                                57,445      9,751
                                                          ========    =======

See notes to the condensed consolidated financial statements.


                                       4
<PAGE>

SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

<TABLE>
<CAPTION>
                                                                                                Total
                                                                     Retained                   Common       Redeemable
                                           Common       Additional   Earnings    Receivable  Shareholders'   Cumulative
                                            Stock         Paid-In  (Accumulated     From        Equity       Preferred
                                       Shares    Amount   Capital     Deficit)   Stock Sale    (Deficit)       Stock
                                       ------    ------   -------     --------   ----------    ---------       -----
<S>                                     <C>       <C>     <C>        <C>         <C>           <C>            <C>
BALANCE, DECEMBER 31, 2000              9,751     $10     $12,859    $(38,663)   $    --       $(25,794)      $ 29,180

Net loss and comprehensive loss            --      --          --        (694)        --           (694)

Preferred stock dividends                  --      --         (25)         --         --            (25)            25

Common shares issued in connection
     with redemption of Class A
     Preferred Stock                   28,667      28      29,177          --         --         29,205        (29,205)

Common Stock issued to
     Dutch A&A net of
     Expenses                          23,050      23       2,347          --     (2,000)           370             --
                                     --------     ---     -------    --------    -------       --------       --------

BALANCE, MARCH 31, 2001                61,468     $61     $44,358    $(39,357)   $(2,000)      $  3,062       $     --
                                     ========     ===     =======    ========    =======       ========       ========
</TABLE>

See notes to the condensed consolidated financial statements.


                                       5
<PAGE>

SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

                                                              Three Months Ended
                                                                   March 31,
                                                              ------------------
                                                               2001       2000
                                                               ----       ----

CASH FLOWS FROM OPERATING ACTIVITIES:

      Net loss                                               $  (694)   $(1,402)
      Adjustments to reconcile net loss
         to net cash provided by (used in) operating
         activities:
         Depreciation and amortization of security
            devices and property, plant and equipment            131        157
         Amortization of intangibles and other assets              7        249
         Provision for bad debts                                  13         11
      Changes in operating assets and liabilities:
         Accounts receivable                                    (112)     2,029
         Net investment in sales-type leases                      24        149
         Inventories                                             712       (679)
         Accounts payable and accrued liabilities               (952)      (212)
         Other, net                                              289       (251)
                                                             -------    -------
               Net cash provided by (used in) operating
                  activities                                    (582)        51
                                                             -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of property, plant and equipment, net              (4)       (13)
      Security devices on lease                                   (1)       (13)
      Intangibles                                                 (3)        (2)
                                                             -------    -------
               Net cash used in investing activities              (8)       (28)
                                                             -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings under the revolving line of credit         (128)        71
      Repayment of obligations under capital leases              (29)       (55)
      Proceeds from sale of stock, net                         2,370         --
      Receivable from stock sale                              (2,000)        --
                                                             -------    -------
               Net cash provided by financing activities         213         16
                                                             -------    -------
INCREASE (DECREASE) IN CASH                                     (377)        39

CASH, at beginning of period                                     927        951
                                                             -------    -------
CASH, at end of period                                       $   550    $   990
                                                             =======    =======

See notes to the condensed consolidated financial statements.


                                       6
<PAGE>

SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001

NOTE A -- Basis of  Presentation  - Knogo North  America  Inc.  and Video Sentry
Corporation Merger

Sentry  Technology   Corporation   ("Sentry"),   a  Delaware  Corporation,   was
established to effect the merger of Knogo North America Inc.  ("Knogo N.A.") and
Video Sentry Corporation  ("Video Sentry") which was consummated on February 12,
1997 (the "Effective  Date"). The merger resulted in Knogo N.A. and Video Sentry
becoming  wholly  owned  subsidiaries  of  Sentry.  The  consolidated  financial
statements include the accounts of Sentry and its  majority-owned  subsidiaries.
All   intercompany   accounts  and   transactions   have  been   eliminated   in
consolidation.

The  consolidated  financial  statements  are  unaudited.   In  the  opinion  of
management,   all  adjustments,   consisting  of  normal  recurring  adjustments
necessary for a fair  presentation of the financial  information for the periods
indicated, have been included. Interim results are not necessarily indicative of
results  for  a  full  year.  These  financial  statements  should  be  read  in
conjunction with the audited consolidated financial statements and notes thereto
included in Sentry's  Annual Report to  Stockholders on Form 10-K for the fiscal
year  ended  December  31,  2000,  as filed  with the  Securities  and  Exchange
Commission.

NOTE B -- Investment by Dutch A&A

On January 8, 2001,  Dutch A&A Holding,  B.V.  ("Dutch A&A) acquired  23,050,452
shares of our  common  stock for $3  million,  of which $1  million  was paid in
January 2001, $1 million was paid on April 30, 2001 and the remaining balance of
$1 million is due on July 31, 2001.  Dutch A&A is a Netherlands  company  which,
through its subsidiaries,  is in the business of development,  manufacture, sale
and  distribution  of  various  kinds  of  identification,  access  control  and
anti-theft electronic article surveillance systems and accessories.

As of January 8, 2001, Dutch A&A owns 37.5% of our outstanding  common stock. At
any time prior to January 8, 2002,  Dutch A&A may increase its  ownership of our
common stock to a total of 51% of the shares of common  stock then  outstanding.
If the  average  market  value of our  common  stock,  measured  over any 10-day
trading period during the one year period following January 8, 2001, is at least
$15.0 million,  the purchase price for the additional shares shall be determined
by multiplying the actual number of shares to be purchased by $.001;  otherwise,
the purchase  price will be $1.5 million.  At any time prior to January 8, 2003,
Dutch A&A may  increase  its  ownership of our common stock to a total of 60% of
the  shares  of  common  stock  then  outstanding.  The  purchase  price for the
additional shares shall be determined as follows: If the average market value of
the common stock,  measured over a 10-day period during the two years  preceding
January 8, 2003, is at least $25 million, the purchase price shall be determined
by  multiplying  the actual number of shares to be purchased by $.001.  If Dutch
A&A previously  exercised its right to acquire shares  increasing its investment
to 51% of our common stock, but the average market value test was not met at the
time of the second  purchase,  then the  purchase  price shall be $3.5  million;
otherwise  the  purchase  price shall be $5.0  million.  As a  condition  to the
investment by Dutch A&A, our stockholders elected three nominees of Dutch A&A to
the Board of Directors at a Special Meeting of Stockholders on December 8, 2000.
If Dutch A&A has not acquired 51% of our common stock by January 8, 2003, one of
the three nominees of Dutch A&A will resign and be replaced, with the consent of
Dutch A&A, by a nominee of our directors who are not nominated by Dutch A&A.

In  addition  to the  election  of three  nominees  of Dutch A&A to the Board of
Directors,  other  matters  which were  approved at the December 8, 2000 Special
Meeting of Stockholders  and became effective on January 8, 2001 were amendments
to the Company's  certificate of  incorporation  to: (i) permit the payment of a
dividend of  additional  shares of Class A Preferred  Stock at the rate of 0.075
shares of Class A  Preferred  Stock for each  share of Class A  Preferred  Stock
held; (ii) to reclassify  Class A Preferred Stock into shares of common stock on
a ratio of five shares of common stock for each share of Class A Preferred Stock
outstanding; and (iii) to increase the number of the Company's authorized shares
of   common   stock  to   140,000,000.   As  a  result  of  the   dividend   and
reclassification,  28,666,660  common  shares  were  issued  to  former  Class A
Preferred shareholders.

Also,  on December 28,  2000,  the Board of  Directors  increased  the number of
directors  from  five to seven  effective  upon the  closing  of the  Dutch  A&A
investment.

The reclassification of the Class A Preferred Shares resulted in a return to the
common shareholders of $27.2 million, which was recorded in the first quarter of
2001. This amount represents the difference between the fair market value of the
common stock issued and the carrying amount of the preferred stock redeemed.


                                       7
<PAGE>

SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001

NOTE C -- Financial Condition and Liquidity

We have  incurred  reduced  revenue  levels,  decreased  financial  position and
recurring  operating  losses over the past  several  years.  To  strengthen  our
financial position, a number of activities have been initiated including:

      o     Investment  of $3 million in newly  issued  shares of the  Company's
            common stock by Dutch A&A. The transaction with Dutch A&A will allow
            us to  introduce  new  products,  share  resources  and simplify our
            capital structure.

      o     Improvements in existing products and service capabilities.

      o     Various cost cutting and cost saving initiatives.

As a result of these activities,  we anticipate that current cash reserves, cash
obtained  pursuant to the Dutch A&A  transaction,  existing  lines of credit and
cash  generated by operations  should be sufficient to meet our working  capital
requirements, as well as future capital expenditure requirements,  over the next
twelve months.

NOTE D  --  Net Investment in Sales-Type Leases

We are the lessor of security devices under agreements expiring in various years
through 2003. The net investment in sales-type leases consists of:

                                           March 31, 2001    December 31, 2000
                                           --------------    -----------------
                                                    (in  thousands)
Minimum lease payments receivable              $ 185              $ 215
Allowance for uncollectible minimum
  lease payments                                  (9)               (10)
Unearned income                                  (16)               (21)
                                               -----              -----
Net investment                                   160                184
Less current portion                              80                 84
                                               -----              -----
Non-current portion                            $  80              $ 100
                                               =====              =====

NOTE E -- Inventories

Inventories consist of the following:

                                   March 31, 2001    December 31, 2000
                                   --------------    -----------------
                                             (in thousands)
Raw materials                          $1,268             $1,479
Work-in-process                         1,985              2,259
Finished goods                          1,309              1,536
                                       ------             ------
                                       $4,562             $5,274
                                       ======             ======

Reserves for excess and obsolete  inventory totaled $3,264,000 and $3,354,000 as
of March 31, 2001 and December 31, 2000,  respectively and have been included as
a component of the above amounts.

NOTE F -- Related Party Transactions

As a result of the Dutch A&A  investment,  Sentry  entered  into a  distribution
agreement with Dutch A&A which contemplates a two-way distribution  relationship
between the companies. Under the agreement,  Sentry has the rights to sell Dutch
A&A's EAS,  access  control and RFID products and  accessories  and Sentry gives
Dutch A&A the rights to sell its EAS and CCTV products and accessories.  Pricing
for  products  under  the  agreements  are  at  the  lowest  prices  charged  to
affiliates.  In  addition,  Dutch A&A will receive  management  fees for product
marketing  and  product  engineering  management  from  Sentry in the  amount of
$100,000 per year. Also,  Peter Murdoch,  a principal of Dutch A&A, will receive
$150,000 in the capacity of President of Sentry.  Purchases  from Dutch A&A were
$60,000 in the quarter ended March 31, 2001. The amount payable to Dutch A&A for
purchases, fees and services as of March 31, 2001 is $78,000.


                                       8
<PAGE>

SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001

NOTE G -- Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting for Derivative
Instruments and Hedging Activities,  which established  standards for accounting
and reporting for derivative  instruments  and hedging  activities.  It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure those instruments at fair value. In
June 1999,  the FASB issued SFAS No. 138,  which  deferred the effective date of
SFAS No. 133 to fiscal years  beginning after June 15, 2000. We adopted SFAS No.
133 on January 31, 2001 and the implementation did not have a material impact on
our consolidated financial statements.

NOTE H -- Change in Accounting Principle

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB
summarizes   certain  of  the  staff's  views  in  applying  generally  accepted
accounting principles to revenue recognition in the financial statements.

In  accordance  with  SAB  101,  we  have  changed  our  accounting  method  for
recognizing  revenue on the sale of equipment  where  post-shipment  obligations
exist.  Previously,  we recognized revenue for equipment when title transferred,
generally upon shipment. Beginning with the first quarter of year 2000, we began
recognizing  revenue  when  installation  is  complete  or  other  post-shipment
obligations  have  been  satisfied.  The  cumulative  effect  of the  change  in
accounting method is a non-cash reduction in net earnings of $301,000,  or $0.03
per share.

NOTE I -- Earnings Per Share

Basic  earnings per share is determined by using the weighted  average number of
common shares outstanding during each period. Diluted earnings per share further
assumes the issuance of common shares for all dilutive  potential  common shares
outstanding. The calculations for earnings per share are as follows:

                                                             2001        2000
                                                             ----        ----
                                                           (in thousands, except
                                                             per share amounts)
Net income (loss):

      Income (loss) before cumulative effect of
         accounting change                                  $26,504    $(1,101)
      Effect of preferred stock dividends                       (25)      (332)
                                                            -------    -------
                                                             26,479     (1,433)
      Cumulative effect of accounting change                     --       (301)
                                                            -------    -------
      Net income (loss) attributed to common shareholders   $26,479    $(1,734)
                                                            =======    =======

      Weighted Average Common Shares                         57,445      9,751
                                                            =======    =======

Basic and Diluted Earnings per Common Share:

      Before cumulative effect of accounting change         $  0.46    $ (0.15)
      Cumulative effect of accounting change                     --      (0.03)
                                                            -------    -------

      Basic and Diluted earnings per Common Share           $  0.46    $ (0.18)
                                                            =======    =======

We did not include  common  stock  options and  warrants in the  computation  of
diluted earnings per share because the effect was antidilutive.


                                       9
<PAGE>

SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Certain Factors That May Affect Future Results

Information  contained or  incorporated  by reference in this periodic report on
Form  10-Q  and  in  other  SEC  filings  by  Sentry  contains  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995 which can be identified by the use of  forward-looking  terminology such
as  "believes,"  "expects,"  "may,"  "will,"  "should" or  "anticipates"  or the
negative  thereof,  other variations  thereon or comparable  terminology,  or by
discussions  of  strategy.  These  forward-looking  statements  involve  certain
significant  risks and  uncertainties,  and actual results may differ materially
from the forward-looking statements. For further details and discussion of these
risks  and  uncertainties  see  Sentry  Technology   Corporation's  SEC  filings
including,  but not limited to, its annual report on Form 10-K. No assurance can
be given that future results covered by the  forward-looking  statements will be
achieved,  and other factors could also cause actual results to vary  materially
from the future results covered in such  forward-looking  statements.  We do not
undertake  to publicly  update or revise any of our  forward-looking  statements
even if experience or future  changes show that the indicated  results or events
will not be realized.

Results of Operations:

Consolidated  revenues were 4% lower in the quarter ended March 31, 2001 than in
the quarter  ended March 31,  2000.  The backlog of orders at March 31, 2001 was
approximately  $5.2 million as compared to  approximately  $6.4 million at March
31,  2000.  Substantially  all of the first  quarter  revenues in 2001 were from
third party customers other than Sensormatic, as compared to $4.3 million or 88%
of total  revenues in the first quarter of 2000.  Total revenues for the periods
presented are broken out as follows:

                                            Q-1          Q-1        % Change
                                           2001          2000      Incr (Decr)
                                           ----          ----      -----------
                                              (in thousands)

EAS                                       $1,335       $2,165          (38)
CCTV                                       2,112        1,427           48
SentryVision(R)                              385          287           34
3M library products                          126          373          (66)
                                          ------       ------          ---
Total sales                                3,958        4,252           (7)
Service revenues and other                   712          620           15
                                          ------       ------          ---
Total revenues                            $4,670       $4,872           (4)
                                          ======       ======          ===

EAS  revenues  were  primarily  impacted  by $0.6  million  lower  OEM  sales to
Sensormatic.  The  increase  in  CCTV  revenues  is  primarily  related  to  the
completion of a large internet data center installation.  SentryVision(R)  sales
increased  slightly  over the 2000  quarter and  included  the first  SmartTrack
system sale.  Sales of 3M library products were lower primarily as a result of a
reduced  marketing  campaign.  Service  revenues  increased  as a result  of the
increase in the installed base of systems

Cost of sales were 51% of total  revenues in the three month  period ended March
31, 2001 compared to 55% in the same periods in the previous  year. The decrease
in the  percentage  in the current year periods is primarily  due to lower scrap
and  rework  costs  relating  to the  SentryVision(R)  product  line and  better
production efficiencies in our manufacturing operations.

Customer service expenses were 2% lower in the first quarter of 2001 than in the
first  quarter  of 2000 due to a  reduction  in the number of  customer  service
representatives and the continuation of our Service Partner program.

Selling,  general and administrative  expenses were 12% lower in the three month
period  ended March 31, 2001 when  compared to the same  periods of the previous
year primarily as a result of lower goodwill amortization.

Research and development costs were 23% lower when compared to the previous year
periods due to a reduction in headcount and a  concentration  on  development of
the SmartTrack system.


                                       10
<PAGE>

SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Net  interest  expense  for the first  quarter  of 2001  decreased  due to lower
average  borrowings  under our revolving  credit  agreement  and lower  interest
rates.

Due to net operating losses, we have not provided for income taxes in any of the
periods presented.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB
summarizes   certain  of  the  staff's  views  in  applying  generally  accepted
accounting  principles to revenue  recognition in the financial  statements.  In
accordance  with SAB 101, we have changed our accounting  method for recognizing
revenue  on  the  sale  of  equipment  where  post-shipment  obligations  exist.
Previously,   we  recognized  revenue  for  equipment  when  title  transferred,
generally upon shipment. Beginning with the first quarter of year 2000, we began
recognizing  revenue  when  installation  is  complete  or  other  post-shipment
obligations  have  been  satisfied.  The  cumulative  effect  of the  change  in
accounting  method is a non-cash  reduction in net earnings of $0.3 million,  or
$0.03 per share.

As a result  of the  foregoing,  Sentry  had a net loss of $0.7  million  in the
quarter  ended March 31,  2001 as compared to a net loss of $1.4  million in the
quarter ended March 31, 2000.

We recorded  preferred  stock  dividends of $25,000  through  January 8, 2001 as
compared to $0.3 million in the first quarter of 2000.

Effective January 8, 2001, and just prior to the Dutch A&A investment, there was
a payment of a dividend of additional  shares of Class A Preferred  Stock at the
rate of  0.075  shares  of Class A  Preferred  Stock  for each  share of Class A
Preferred Stock held and immediately  thereafter a reclassification of the Class
A Preferred  Stock into common  stock at a ratio of five shares of common  stock
for each share of Class A Preferred Stock outstanding.  The  reclassification of
the Class A Preferred Shares resulted in a return to the common  shareholders of
$27.2  million,  which was  recorded in the first  quarter of 2001.  This amount
represents  the  difference  between the fair market  value of the common  stock
issued and the carrying amount of the preferred stock redeemed.

Liquidity and Capital Resources as of March 31, 2001

The Company has incurred reduced revenue levels,  decreased  financial  position
and recurring  operating  losses over the past several years.  To strengthen the
Company's  financial  position,  a number  of  activities  have  been  initiated
including:

      o     Investment  of $3 million in newly  issued  shares of the  Company's
            common stock by Dutch A&A. The transaction with Dutch A&A will allow
            the Company to introduce new products,  share resources and simplify
            the Company's capital structure.

      o     Improvements in existing products and service capabilities.

      o     Various cost cutting and cost saving initiatives.

As a result of these  activities,  the Company  anticipates  that  current  cash
reserves, cash obtained pursuant to the Dutch A&A transaction, existing lines of
credit  and cash  generated  by  operations  should  be  sufficient  to meet the
Company's working capital  requirements,  as well as future capital  expenditure
requirements, over the next twelve months.

On January 8, 2001,  Dutch A&A Holding,  B.V.  ("Dutch A&A) acquired  23,050,452
shares of the  Company's  common  stock for $3 million,  of which $1 million was
paid in January  2001,  $1 million was paid on April 30, 2001 and the  remaining
balance  of $1  million  is due on July 31,  2001.  Dutch  A&A is a  Netherlands
company  which,  through its  subsidiaries,  is in the business of  development,
manufacture,  sale and distribution of various kinds of  identification,  access
control and anti-theft electronic article surveillance systems and accessories.


                                       11
<PAGE>

SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

As of January 8, 2001,  Dutch A&A owns 37.5% of the outstanding  common stock of
the  Company.  At any time prior to January 8, 2002,  Dutch A&A may increase its
ownership  of the  Company's  common  stock to a total of 51% of the  shares  of
common stock then  outstanding.  If the average  market  value of the  Company's
common stock, measured over any 10-day trading period during the one year period
following January 8, 2001, is at least $15.0 million, the purchase price for the
additional shares shall be determined by multiplying the actual number of shares
to be purchased by $.001; otherwise, the purchase price will be $1.5 million. At
any time prior to January 8, 2003,  Dutch A&A may increase its  ownership of the
Company's  common  stock to a total of 60% of the  shares of common  stock  then
outstanding. The purchase price for the additional shares shall be determined as
follows: If the average market value of the common stock, measured over a 10-day
period during the two years preceding  January 8, 2003, is at least $25 million,
the purchase  price shall be  determined  by  multiplying  the actual  number of
shares to be purchased by $.001. If Dutch A&A previously  exercised its right to
acquire shares  increasing its investment to 51% of the Company's  common stock,
but  the  average  market  value  test  was not  met at the  time of the  second
purchase, then the purchase price shall be $3.5 million;  otherwise the purchase
price shall be $5.0 million.  As a condition to the investment by Dutch A&A, the
stockholders  of the Company elected three nominees of Dutch A&A to the Board of
Directors at a Special Meeting of Stockholders on December 8, 2000. If Dutch A&A
has not acquired 51% of the  Company's  common stock by January 8, 2003,  one of
the three nominees of Dutch A&A will resign and be replaced, with the consent of
Dutch A&A, by a nominee of the directors of the Company who are not nominated by
Dutch A&A.

In  addition  to the  election  of three  nominees  of Dutch A&A to the Board of
Directors,  other  matters  which were  approved at the December 8, 2000 Special
Meeting of Stockholders  and became effective on January 8, 2001 were amendments
to the Company's  certificate of  incorporation  to: (i) permit the payment of a
dividend of  additional  shares of Class A Preferred  Stock at the rate of 0.075
shares of Class A  Preferred  Stock for each  share of Class A  Preferred  Stock
held; (ii) to reclassify  Class A Preferred Stock into shares of common stock on
a ratio of five shares of common stock for each share of Class A Preferred Stock
outstanding; and (iii) to increase the number of the Company's authorized shares
of common stock to 140,000,000.

Also,  on December 28,  2000,  the Board of  Directors  increased  the number of
directors  from  five to seven  effective  upon the  closing  of the  Dutch  A&A
investment.


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<PAGE>

SENTRY TECHNOLOGY CORPORATION
PART II - OTHER INFORMATION & SIGNATURES

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

      (a)   None:

      (b)   Reports on Form 8-K - On  January  22,  2001,  the  Company  filed a
            current report on Form 8-K with respect to the purchase by Dutch A&A
            of 23,050,452 shares of the Company's common stock.

            On March 8, 2001,  the  Company  filed a current  report on Form 8-K
            with  respect to the  resignation  of Anthony H.N.  Schnelling  as a
            Director of the Company.

SIGNATURES

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  had duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                SENTRY TECHNOLOGY CORPORATION

Date:    May 15, 2001           By: /S/   PETER J. MUNDY
         ------------               --------------------------------------------
                                    Peter J. Mundy, Vice President - Finance and
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


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